Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

Reserve Bank Of India – FSR Is Very Unrealistic

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

India posted a current account surplus (0.9% of GDP) in FY2020/21, the first annual surplus since FY2003/04 (the last year of the first BJP-led NDA government). That, coupled with net FDI of US$44 billion and net FPI of US$36 billion, ensured an overall balance of payments surplus of US$87.3 billion in the pandemic year, FY2020/21. The strength of the external balance allows India to boost aggregate demand more aggressively in FY2021/22. Merchandise exports expanded 114% YoY in April-May 2021 (the first 2 months of FY2021/22), with the 69% YoY growth in May suggesting that exports rode out the severity of the Second Covid Wave relatively unscathed. Imports expanded 109% YoY in April-May 2021, reflecting a powerful rebound in domestic demand (albeit one that was restrained by partial lockdowns in May). The rebound in industrial production (+134% YoY) and manufacturing (+197% YoY) in April 2021 was spectacular. Although May will likely see a deceleration, India's steel output grew 47% YoY in May, setting the pace among the world's top steel producers with 33.6% YoY growth in Jan-May 2021. We retain our forecast of 11% real GDP growth in FY2021/22, and 8% in FY2022/23. The virulent Second Wave of Covid has receded, with the 7-day moving average of new Covid cases falling below 50,000 in the past week (from a peak above 392,000 on 8 May). Vaccinations have accelerated sharply since the federal government took charge on 21 June (and funded free vaccines for all adults), but only 33% of all adults (270 million individuals) have received at least one vaccine dose, of whom 57 million (7% of all adults) have been fully vaccinated. This is far from achieving herd immunity, but widespread vaccinations ensure that any third wave will have a much less negative impact on the economy. Despite stretched valuations, we are bullish on India equities, as the strong economic recovery will boost earnings, alleviating the overvaluation.

India posted a current account surplus (0.9% of GDP) in FY2020/21, the first annual surplus since FY2003/04 (the last year of the first BJP-led NDA government). That, coupled with net FDI of US$44 billion and net FPI of US$36 billion, ensured an overall balance of payments surplus of US$87.3 billion in the pandemic year, FY2020/21. The strength of the external balance allows India to boost aggregate demand more aggressively in FY2021/22. Merchandise exports expanded 114% YoY in April-May 2021 (the first 2 months of FY2021/22), with the 69% YoY growth in May suggesting that exports rode out the severity of the Second Covid Wave relatively unscathed. Imports expanded 109% YoY in April-May 2021, reflecting a powerful rebound in domestic demand (albeit one that was restrained by partial lockdowns in May). The rebound in industrial production (+134% YoY) and manufacturing (+197% YoY) in April 2021 was spectacular. Although May will likely see a deceleration, India's steel output grew 47% YoY in May, setting the pace among the world's top steel producers with 33.6% YoY growth in Jan-May 2021. We retain our forecast of 11% real GDP growth in FY2021/22, and 8% in FY2022/23. The virulent Second Wave of Covid has receded, with the 7-day moving average of new Covid cases falling below 50,000 in the past week (from a peak above 392,000 on 8 May). Vaccinations have accelerated sharply since the federal government took charge on 21 June (and funded free vaccines for all adults), but only 33% of all adults (270 million individuals) have received at least one vaccine dose, of whom 57 million (7% of all adults) have been fully vaccinated. This is far from achieving herd immunity, but widespread vaccinations ensure that any third wave will have a much less negative impact on the economy. Despite stretched valuations, we are bullish on India equities, as the strong economic recovery will boost earnings, alleviating the overvaluation.  

Export-Led Recovery to Broaden as 2nd Covid Wave Recedes

*Extending The Emergency Funding Plan: The Emergency Credit Line Guarantee Scheme (ECLGS) for Indian SMEs was launched in May 2020 under the Indian government’s ‘Atmanirbhar’ or self-sufficiency package in order to help offset the weakened economic conditions resultant of COVID-19. ECGLS was subsequently expanded in November 2020 to include 26 additional stressed sectors. In its latest attempt at forbearance, the Indian government just expanded its ECLGS from INR 3 tn to INR 4.5 tn; and *Kick That Can: Banks have already on-lent INR 2.7 tn under the ECLGS, and this recent announcement should further allow India to kick the can of stressed loans down the road. We remind the Indian government that if you’re extending, you are pretending.  That said, net new NPL growth should still accelerate through FYE 2022 given what appears to government crisis mismanagement which should extend the duration of the second COVID-19.

*Extending The Emergency Funding Plan: The Emergency Credit Line Guarantee Scheme (ECLGS) for Indian SMEs was launched in May 2020 under the Indian government’s ‘Atmanirbhar’ or self-sufficiency package in order to help offset the weakened economic conditions resultant of COVID-19. ECGLS was subsequently expanded in November 2020 to include 26 additional stressed sectors. In its latest attempt at forbearance, the Indian government just expanded its ECLGS from INR 3 tn to INR 4.5 tn; and *Kick That Can: Banks have already on-lent INR 2.7 tn under the ECLGS, and this recent announcement should further allow India to kick the can of stressed loans down the road. We remind the Indian government that if you’re extending, you are pretending.  That said, net new NPL growth should still accelerate through FYE 2022 given what appears to government crisis mismanagement which should extend the duration of the second COVID-19.

*New Regulation, New Loopholes: The Reserve Bank of India (RBI) has finalized rules for non-bank financial company (NBFC) dividend payout ratios at a maximum of 50%. The methodology is predicated on the net NPL ratio and CAR. The new proposal is riddled with loopholes, as NBFCs can easily manipulate these ratios; and*Well-Placed NBFCs: Excluding LIC Housing Finance (LICHF.IN) and Shriram Transport (SHTF.IN), most large NBFCs are well placed to meet the proposed dividend cap if the guidelines are made applicable from the previous year.

*New Regulation, New Loopholes: The Reserve Bank of India (RBI) has finalized rules for non-bank financial company (NBFC) dividend payout ratios at a maximum of 50%. The methodology is predicated on the net NPL ratio and CAR. The new proposal is riddled with loopholes, as NBFCs can easily manipulate these ratios; and*Well-Placed NBFCs: Excluding LIC Housing Finance (LICHF.IN) and Shriram Transport (SHTF.IN), most large NBFCs are well placed to meet the proposed dividend cap if the guidelines are made applicable from the previous year.

Reserve Bank of India – Wrong Rule At Wrong Time

Real GDP (measured from aggregating sectoral value-addition) grew 3.7% YoY, while GDE would have grown 3.1% YoY but for a large statistical discrepancy (which subtracted 1.5pp). Fixed investment spending was up 10.9% YoY, accelerating from 2.6% YoY in the previous quarter. This is likely to remain the key driver of GDP in FY2021/22. Reflecting strong economic growth, government revenue (which is seasonally-weak in April-May) was 1/12th of the annual budgeted figure in April 2021, suggesting there will be ample scope for accelerated spending as privatization receipts flow in. The worst is over for the economy. Real GDP (derived from aggregating gross value-added in each sector of the economy) expanded 3.7% YoY in 4Q-FY2020/21 (January-April 2021), led by strong growth in manufacturing (+6.9% YoY), construction (+14.5% YoY), Utilities (+9.1% YoY), and financial, professional &amp; real-estate services (+5.4% YoY). Agriculture decelerated to 3.1% YoY growth (from 4.5% in the previous quarter, and average growth of 3.7% YoY in the previous 3 quarters), and transport, communication, broadcasting, trade and hotel services declined 2.3% YoY, but the momentum of recovery was evident across the rest of the economy.The less-reliable Gross Domestic Expenditure aggregate showed the economy expanding only a modest 1.6% YoY in 4Q-FY2020/21, but included a huge "discrepancy" item which subtracted 1.5 percentage points! Without that odd statistical discrepancy, the GDE aggregate would also have grown 3.1% YoY (far ahead of the consensus of 1.2%). The most heartening feature was the 10.9% YoY growth in fixed investment spending (accelerating from 2.6% YoY growth in the previous quarter, and following a long period of contraction). Government spending (which is just over 1/4th the size of private consumption) expanded 28.3% YoY -- partly because past food subsidies were paid out during the quarter (which would subtract from the net-indirect-tax component of GDE at market prices). Private consumption grew a modest 2.7% YoY, and net exports subtracted 3.4 percentage points from GDE, although this is where the statistical discrepancy would have widest.

Real GDP (measured from aggregating sectoral value-addition) grew 3.7% YoY, while GDE would have grown 3.1% YoY but for a large statistical discrepancy (which subtracted 1.5pp). Fixed investment spending was up 10.9% YoY, accelerating from 2.6% YoY in the previous quarter. This is likely to remain the key driver of GDP in FY2021/22. Reflecting strong economic growth, government revenue (which is seasonally-weak in April-May) was 1/12th of the annual budgeted figure in April 2021, suggesting there will be ample scope for accelerated spending as privatization receipts flow in. The worst is over for the economy. Real GDP (derived from aggregating gross value-added in each sector of the economy) expanded 3.7% YoY in 4Q-FY2020/21 (January-April 2021), led by strong growth in manufacturing (+6.9% YoY), construction (+14.5% YoY), Utilities (+9.1% YoY), and financial, professional &amp; real-estate services (+5.4% YoY). Agriculture decelerated to 3.1% YoY growth (from 4.5% in the previous quarter, and average growth of 3.7% YoY in the previous 3 quarters), and transport, communication, broadcasting, trade and hotel services declined 2.3% YoY, but the momentum of recovery was evident across the rest of the economy.The less-reliable Gross Domestic Expenditure aggregate showed the economy expanding only a modest 1.6% YoY in 4Q-FY2020/21, but included a huge "discrepancy" item which subtracted 1.5 percentage points! Without that odd statistical discrepancy, the GDE aggregate would also have grown 3.1% YoY (far ahead of the consensus of 1.2%). The most heartening feature was the 10.9% YoY growth in fixed investment spending (accelerating from 2.6% YoY growth in the previous quarter, and following a long period of contraction). Government spending (which is just over 1/4th the size of private consumption) expanded 28.3% YoY -- partly because past food subsidies were paid out during the quarter (which would subtract from the net-indirect-tax component of GDE at market prices). Private consumption grew a modest 2.7% YoY, and net exports subtracted 3.4 percentage points from GDE, although this is where the statistical discrepancy would have widest.  

Clear Recovery in Jan-Mar, Accelerating Sharply in Apr'21; Ample Scope for Stimulus

India

iShares MSCI India Index ETF is an exchange-traded fund registered in Singapore. The Fund seeks to provide investment results that, before expenses, closely correspond to the performance of the MSCI India Index. The Fund invests all or substantially all of its assets in shares comprising the MSCI India Index in substantially the same weightings as constituted in the underlying index.

iShares MSCI India Index ETF (INDIA SP)

Reserve Bank Of India – FSR Is Very Unrealistic

RESERVE BANK OF INDIA: According to the RBI, NPLS are not anticipated to be as bad. This couldn't be further from the truth. NPLs continue to...

Thomas J. Monaco

Export-Led Recovery to Broaden as 2nd Covid Wave Recedes

FY2021/22 CA surplus creates space for faster growth this year. Exports up 114%YoY in Apr-May, imports +109%, & world-leading steel growth are...

Prasenjit K. Basu

India Financials – Plop Plop Fizz Fizz

INDIA FINANCIALS: ECLGS was launched in May 2020 to offset poor economic conditions. ECGLS has again been expanded from INR 3 tn to INR 4.5 tn....

Thomas J. Monaco

Reserve Bank of India – Wrong Rule At Wrong Time

RESERVE BANK OF INDIA: The RBI has finalized rules for NBFC dividend payout ratios at 50% - predicated on the net NPL ratio and CAR. The new...

Thomas J. Monaco

Clear Recovery in Jan-Mar, Accelerating Sharply in Apr'21; Ample Scope for Stimulus

Real GVA rose 3.7%YoY, & (adding back a stat discrepancy) GDE was up 3.1% in Jan-Mar21. That boosted gov revenue. That & privatization to...

Prasenjit K. Basu